A Tangle in Textiles

By TRACIE ROZHON

Published: April 21, 2005

New York's garment district is in turmoil.

The long-awaited end of country-by-country quotas on apparel imports was supposed to usher in an era of more efficient global operations, allowing companies like Jones Apparel, Liz Claiborne and Calvin Klein to arrange for their clothes to be sewn wherever it made the most sense.

But the garment industry's pumping up of production in China set off a reaction around the world that could lead Beijing to curb exports significantly in hopes of preventing even harsher limits from being imposed by the United States and Europe. That is making it unexpectedly difficult for the fashion industry to predict its costs and to maintain a reliable supply network.

''Right now, it's a complete free-for-all,'' said Bruce Rockowitz, president of Li & Fung Trading, one of the world's biggest agents for Asian clothing manufacturing. Sitting in his office in Manhattan's garment district, Mr. Rockowitz said the current uncertainty ''is destabilizing factories in China and garment makers in the United States.''

The level of uncertainty just keeps rising. This week, some American clothing executives said they had heard conflicting reports about China's readiness to impose substantial new tariffs, perhaps as early as May.

To a certain extent, the confusion is the garment industry's own fault. Before the end of 2004, most clothing companies placed rush orders in China for billions of dollars of goods, which flooded into the United States after the global quotas were lifted on Jan. 1.

The large apparel companies have been moving toward suppliers outside the United States for decades, fitting China into a complex system of manufacturers in places like the Caribbean and Latin America, Asia and Africa, all because of the global rules.

But now, for the first time, American companies can freely trade in articles like cotton pants and tops without the expensive and time-consuming need to balance orders among dozens of countries.

Since the beginning of the year, wholesale prices of those tops and pants have fallen 20 percent to 40 percent. And the volume has been unprecedented: in one month -- January -- the Chinese shipped as much of certain categories as they shipped in all of 2004.

America's remaining textile producers and clothing manufacturers protested that the surge of cheap imports needed to be contained and demanded that Washington step in to soften the blow.

In hopes of defusing the tensions, China imposed its own minor export tariffs, which took effect earlier this year. But most clothing executives worry that more restrictions are coming.

''There is a lot of noise right now that China is getting ready to increase tariffs substantially,'' said Robert J. Zane, who directs manufacturing and distribution worldwide for Liz Claiborne. ''I have spoken to two highly placed Chinese officials: one says they will and one says they won't. Clearly, they haven't made up their minds.''

''Will there be new quotas?'' Mr. Zane continued. ''Probably. Will there be antidumping legislation, passed by the U.S.? Maybe.''

With billions of dollars of merchandise at stake, many nervous Seventh Avenue executives are scrambling to devise strategies to hedge their bets on China.

Many have tried to rush through as many orders as they can before new tariffs are levied or Congress presses the Bush administration to throw some sand into the Chinese export machine.

But Liz Claiborne, among others, has already started cutting back on some China orders.

''If you believe -- as we do -- that there will be new quotas imposed sometime from mid-June to mid-September of this year,'' Mr. Zane said, ''then it's highly likely that those quotas will be oversubscribed before the end of the year.''

For orders of certain articles that are scheduled to arrive in stores this fall and winter, he said, the word has gone out: ''Don't place them in China.''

Li & Fung arranges the manufacture of $6.1 billion worth of clothes and other goods a year, for giant store chains like Kohl's, American Eagle Outfitters and Restoration Hardware.

''Generally, we're being very cautious about China,'' Mr. Rockowitz said.

Fashion companies have varied strategies. Many are still spreading their orders among low-wage apparel-making countries like Bangladesh, Vietnam and El Salvador.

''Right now, you don't want to put all of your eggs in one basket,'' said Homi Patel, the chief executive of Hartmarx, a $586 million clothing company that specializes in tailored suits.

The decades-old quota system was complex, with allocations for specific products in specific countries often bought and sold like futures contracts.

''But once you figured it out, you were golden,'' Mr. Zane said. By contrast, the new uncertainty over the free market in apparel is ''a nightmare,'' he said, ''because we're afraid everything will change.''

American retailers and producers have gained, on the whole, under the system this year, managing to wring out savings at the wholesale level without necessarily cutting prices to consumers. Seventh Avenue executives say the overall uncertainty makes cutting prices now too risky: they say they will wait until they know whether the Chinese government will impose higher tariffs on exports.